8 The Thorny Issue of Returns

The economics of the book market are based in particular on the principle that unsold books may be returned within a specified period. Titles shipped under the système d'office, for example, may be returned within twelve months. This practice may be surprising for anyone not familiar with the book trade. To explain the reasoning behind the principle of returns, it must be understood that if unsold copies could not be returned, independent bookstores would not be able to take risks with the works of lesser-known authors, making access to a diversity of titles difficult, if not impossible. When we consider booksellers' very thin profit margins, it is easy to understand that returns are essential to the survival of bookstores and the diversity of supply.

Breaking down the unit costs of book distribution has clearly shown the magnitude of the costs of handling and shipping books. The costs of preparing and shipping books, particularly returns, can be critical in determining whether a distributor is operating at a profit or a loss.

For a long time, attempts have been made at measuring the return rate in the various retail networks, usually with only limited success. It was thought, for example, that in the 1980s and 1990s (at the same time Bill 51 was enacted and the système d'office was enhanced), [translation] "the return rate doubled in 15 years, from 15% to 30%, with peaks of up to 40% in the early 1990s."¹ Ménard published an estimate of the return rate for 1998-1999, in the bookstores and mass-market channels, demonstrating in particular that the return rate on new titles and reissues was 13% higher in the mass-market channels that in the bookstore channel, and 14% higher for all titles.

There is a great deal of concern about the return rate, particularly when it is high, since the profitability of the distribution business depends on it. It is indeed estimated that [translation] "a 1% variation in the overall return rate (up or down), when it is the result of a variation in net sales, means, for distributors, a 0.12% increase/decrease in their gross margins, which, all other things being equal, corresponds to a 0.1% variation in their net profit before taxes."² In real terms, a 30% return rate means that in order to sell 100 books, 143 have to be handled.

In order to better grasp the significance of return rates and analyse the impact of the way the système d'office currently operates on returns, the Table de concertation interprofessionnelle du milieu du livre commissioned a major study specifically on the système d'office. The report, Étude sur la mise en marché des nouveautés par le système de l'office au Québec, was released in 2007. Although the study was limited to new titles in the bookstore channel (mass-market channels do not operate on the système d'officemodel), it contains a great deal of data and information that is just beginning to be fully utilized.

The study reveals the real return rates on new titles by calculating, for each title shipped under the système d'office over a period of one year, the number of copies shipped under the système d'office, less the number of copies returned, plus the number of copies sent as restocking over a period of one year following the release of the book.

Table 17.    Overall flow of Quebec and foreign titles combined by category, bookstore channel

Shipping		Restocking		Returns		Publishers' Net Sales		Return Rate on système d'office %		Return Rate on système d'office and Restocking %
Copies	$	Copies	$	Copies	$	Copies	$	Copies	$	Copies	$
5,823,578	120,960,294	3,783,583	80,591,776	2,898,687	61,709,306	6,708,474	139,842,765	49.78%	51.02%	30.17%	30.62%

Source: Étude sur la mise en marché des nouveautés par le système de l'office au Québec, Table de concertation interprofessionnelle du milieu du livre, 2007, p. 38

During the twelve months covered by the study, 5,823,578 copies were shipped under the système d'office in the bookstore channel, to which 3,783,583 copies were added through restocking, or 65% of the value of the système d'office in terms of number of copies. However, 2,898,687 copies were returned, which represents net sales of 6,708,474 copies. Thus, if we consider strictly the return of copies shipped under the système d'office, the return rate amounts to 49.78%. However, it is more relevant to also consider copies shipped in restocking during the year following the release of the book, since we then bring together all the movements of new titles. In this case, the return rate (based on the number of copies) on the système d'office and restocking is 30.62%.

The study also reveals that the return rate on système d'office and restocking, based on the number of copies, is different for Quebec titles (27.04%) and foreign titles (32.51%), which indicates that diffusers and distributors are effective at accurately planning the placement of Quebec and French-Canadian titles in the bookstore channel.

Lastly, there are already findings based on the analysis of Table 9, which presented the average number of copies sold, by système d'office bracket. What was found was that the smaller the number of copies placed on the système d'office by title, the higher the return rate on système d'office and restocking; the result was a very high number of titles with very high return rates (the 22,471 titles placed on the système d'office for 500 copies or less recorded an average return rate of 41.95%), whereas a very small number of titles experienced very low return rates (the 87 titles placed on the système d'office for more than 5,000 copies recorded an average return rate of 11.64%).

This survey of returns in the French-language book trade in Canada definitively highlights the importance of continuously reducing the return rate in order to ensure better profitability for businesses throughout the supply chain. Returns are very expensive for diffusers and distributors, booksellers and publishers. It will probably be necessary to continue industry consultations and dialogue in order to develop rules for the système d'office that are better adapted to the realities of the book trade, mainly by taking into account the larger number of titles being published with increasingly smaller print runs. Moreover, it is becoming increasingly obvious that [translation] "at a time when the number of titles to be distributed is increasing, average sales decreasing and number of retail outlets growing, the pressure on unit costs requires constant improvement to distributors' logistical performance."³

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